The Chinese stock market is developing into a âbubbleâ and investors are in danger of behaving irrationally, a leading Chinese legislator said on Tuesday in the strongest public expression of concern to come from a senior state figure.

Cheng Siwei, vice-chairman of the National Peopleâs Congress and an influential figure in Beijing financial circles, warned the mainland stock market could be overheating, after a rise of 130 per cent last year.

ADVERTISEMENT

âThere is a bubble going on. Investors should be concerned about the risks,â Mr Cheng said in an interview with the Financial Times.

âBut in a bull market, people will invest relatively irrationally. Every investor thinks they can win. But many will end up losing. But that is their risk and their choice.â

He added: âYou canât take administrative measures to change peopleâs behaviour. The market is based on peopleâs behaviour. Investors will have to learn their own lessons.â

After a five-year slump from 2001, the sharp rise in the market during the past year has prompted a stock market frenzy in mainland China by retail investors. Shanghaiâs exchange has seen record daily trading volumes this month.

Mr Cheng, speaking at the FT China-Middle East summit in Dubai, is not officially involved in financial policy, but his public views often reflect the thinking of senior leaders.

His comments came as signs emerged that the government was trying to limit speculation in stocks. A sharp fall could hamper plans for large companies to launch domestic flotations this year.

The China Banking Regulatory Commission has begun to investigate whether individuals have been using loans for cars or houses to invest in stocks, a government official said on Tuesday

The banking regulator is also looking into use of credit cards to fund share purchases, and the government body that oversees state-owned companies has warned them not to speculate on the stock market.

The State-owned Assets Supervision and Administration Commission said a collapse in the stock market would hurt both companies and the public. Some state-owned companies have formerly borrowed money to buy shares.

Some China-based analysts believe the fears of a stock market bubble are exaggerated.

âAfter the recent rise in share prices, there might not be much space for further increases in the next few months, but at the current price level the market is not facing a serious problem of over-valuation,â said Zhu Haibin, an analyst at Everbright Securities in Shanghai.

Other analysts say a modest correction would create the conditions for a sustainable medium-term rise in mainland share prices.

Mr Cheng also warned investors that âin terms of profits, returns and other indicators, 70 per cent of listed companies on the mainland do not meet international standardsâ.